The prospects for a fiscal tightening have increased following the release Thursday of data showing the world's third-largest economy expanded by 8.7 percent in 2009 and 10.7 percent in the fourth quarter, analysts said.

The fastest quarterly growth rate in two years and the biggest rise in inflation in 13 months has increased the chances of further tightening measures as Beijing seeks to maintain steady economic growth, analysts said.

"We expect inflation to continue rising throughout this year, with additional tightening steps including rate hikes," said Citigroup economists Ken Peng and Shen Minggao in a research report.

Beijing has already moved this month to calm growing inflationary pressures and the threat of asset bubbles caused by soaraway bank lending, which last year nearly doubled from 2008.

The People's Bank of China on Thursday raised the interest rate on its benchmark three-month treasury bills for the second time in two weeks in a bid to deter new lending.

It followed an earlier move on its benchmark one-year treasury bills.

Chinese banks have been ordered to increase their capital reserves -- effectively limiting the amount of money they can lend out -- amid mounting fears over bad debts as consumers go on a spending spree on property and cars.

As economic growth heats up, analysts said they expect policymakers to push reserve ratios even higher and further increase rates on treasury bills before resorting to more aggressive measures such as hiking interest rates.

"We look for a minor acceleration in quantitative tightening through lending restrictions and raising the reserve requirement ratio," said Credit Suisse research analyst Tao Dong.

Interest rates would likely stay on hold until inflation went above three percent or the US Federal Reserve raised its own rates, Tao said.

Raising rates before the US does so may encourage investors to buy the relatively higher-yielding yuan-denominated assets, exacerbating inflation and putting pressure on the yuan to appreciate.

China's consumer price index rose 1.9 percent year-on-year in December and analysts expect full-year 2010 inflation to exceed three percent.

The index fell 0.7 percent over 2009, with China only emerging from an almost year-long bout of deflation in November.

Moody's Economy.com associate economist Alaistair Chan said rumours of an imminent interest rate hike were likely to prove unfounded.

"While this is possible, it seems a much more dramatic step than the government is willing to take," he said.

But Chan said he expected to see further tightening measures.

"These include even higher bill yields, increased bill auctions, higher capital reserve ratios, and public and private discouragement of bank lending.

"An increase in interest rates is still expected to happen, but mid-2010 at the earliest," he said.

Last week, Premier Wen Jiabao said Beijing was carefully monitoring the risks associated with its hefty pump-priming of last year which included a four trillion yuan (586 billion dollar) stimulus package and state-sanctioned bank lending.

Wen's comments appeared to boost the likelihood that China could exit its aggressive stimulus policy and apply the brakes.

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